Back when I delivered to you “The Million Dollar Tech Portfolio” on March 6, I told you that “The road to wealth is paved by tech.”
And I was fully confident in that statement at the time.
Even I, however, couldn’t have predicted the eye-popping success that you’ve had with one of that portfolio’s recommendations.
I’m talking a peak gain of 99.4% in less than fourth months. That adds up to an astounding annualized return of nearly 300%.
Today, I’m going to outline the five catalysts that contributed to the stock’s huge rally.
The Best Play in the “Valley”
Of course, I’m talking about our “video everywhere” play – Ambarella Inc. (Nasdaq: AMBA).
Longtime Strategic Tech Investor readers know that I was one of the first analysts to discover Ambarella’s potential.
And they’ve made out pretty well thanks to that.
Since I discovered the company and first recommended it on Aug. 2, 2013, it’s made peak gains of 590.1%.
I’ve been around Silicon Valley for a long time now – and so I keep tabs on the semiconductor industry and am always on the lookout for “semi” developers that are not only financially successful but also so innovative and ahead of the game that other companies can’t do without their chips.
And that’s what I saw in Ambarella.
It makes systems on a chip (SoC) that combine several computing components on a single semiconductor.
But more than that, the Santa Clara, Calif.-based firm specializes in making chips for video compression and image processing. Basically, that means Ambarella is behind the technology that’s making all sorts of digital cameras – from the one in your smartphone to the high-definition broadcast cameras filming the Super Bowl – some of the most amazing products of the early 21st century.
As I see it, the stock has benefited and will continue to thrive thanks five key catalysts.
“Video Everywhere” Catalyst No. 1: Sterling Financials
A good part of the recent rally stems from Ambarella’s amazing first quarter.
On June 2, Ambarella reported that sales for the fiscal quarter ended April 30 soared 73.5% year over year, to nearly $41 million. That growth rate is more than double the company’s already impressive three-year annual average of 32%.
Earnings were even more impressive. On a per-share basis, they jumped by 229% to 56 cents.
Ambarella is also a cash machine. The firm has no debt and increased cash on hand in the quarter by 51% to $235.2 million.
“Video Everywhere” Catalyst No. 2: Action Cameras and UAVs
Ambarella is perhaps best known as the leader in chips for the “action camera” market.
Those are the video cameras that skiers, skateboarders, base jumpers and other “extreme” sports heroes strap to their helmets and then use to film their daring deeds – and then post them on YouTube.
Indeed, Ambarella’s chips may be the key factor behind the roaring success of action camera market leader GoPro Inc. (Nasdaq: GPRO). GoPro makes the highly popular Hero line of wearable cameras.
But Ambarella doesn’t stop there.
The company has recently started tweaking its chips to work in what it calls “flying cameras.” Those are the unmanned aerial vehicles (UAVs), or drones, I know you’ve been hearing a lot about.
That’s a field that will see explosive growth once federal and state agencies approve UAVs for law enforcement, surveying, agriculture, oil and gas line inspections, package delivery, and news and sports filming.
According to the analysts at MarketsandMarkets, the global UAV sector will grow at a compound annual growth rate (CAGR) of 7.8% from $6.76 billion in 2014 to $10.57 billion in 2020. But recent moves from those U.S. agencies tell me that drones could grow much bigger and faster than that.
In just one example, this moves Ambarella into tech-centric “precision agriculture.” There’s scant information about potential U.S. ag drone sales. But we do have some empirical data from Japan, a country roughly the size of California.
Japan began using unmanned helicopters for crop-spraying in 1990, and 20 years later drones account for 30% of rice field applications.
“Video Everywhere” Catalyst No. 3: Backup Cameras
Ambarella also is targeting the huge growth ahead for connected cars.
These Web-enabled autos have in-dash infotainment centers, Bluetooth integration and – here’s where Ambarella comes in – backup cameras… those safety devices and “parking helpers” I know you’ve been lusting after if your ride doesn’t have one already.
You won’t have long to wait. The National Highway Traffic Safety Administration requires that all cars sold in the U.S. be equipped with backup cameras.
And that makes this a market ripe with potential.
Over the last decade, the domestic auto industry has averaged more than 15 million cars and light-duty trucks sold per year. And Car and Driver magazine estimates the auto industry will spend between $546 million and $924 million a year on backup-camera technology.
“Video Everywhere” Catalyst No. 4: Surveillance
The market for video surveillance is rapidly moving away from analog cameras with data stored on tape to all-digital tech. That’s something I can attest to personally.
I just installed what’s known as Internet Protocol (IP) surveillance in my own home. The HD cameras broadcast to a computer network for local viewing as well as for remote monitoring from my smartphone.
So, I speak from personal experience when I say this is another great area for Ambarella. MarketsandMarkets forecasts video surveillance sales will climb from an estimated $15 billion in 2013 to $25 billion by the end of 2016. That’s an increase of 60% in just three years.
Ambarella already has huge name recognition in this field. Its supplies HD chips for Dropcam, a startup that makes cloud-based home-security cameras and is owned by Google Inc. (Nasdaq: GOOGL).
“Video Everywhere” Catalyst No. 5: UHDTV
We’re still in the very early stages in the rollout of advanced ultra-high-definition televisions (UHDTVS). And like connected cars and UAVs, this is destined to become a huge market.
NPD DisplaySearch says UHDTVs will soon account for roughly 25% of all 50-inch-plus televisions sold in the U.S. The market for TV sets of all sizes is about $28 billion a year.
So, if UHDTVs take just 10% of the market by 2018, that’s nearly $3 billion a year in sales.
Ambarella is focused on the professional broadcast end of this market. That means its chips will be used in commercial-grade video cameras as well as for transmitting images over the airwaves and the Web.
A Buying Opportunity
After such an amazing run – and after a particularly nasty, widely distributed “short” report – yesterday’s 20.7% dip was not much of a surprise.
This is classic panic selling based on nothing more than a short seller’s opinion. On Friday, Citron Research called Ambarella’s share price “ridiculous” and slapped a $60 12-month price target on shares of the company, 49% below where they currently trade.
Those comments got picked up by The Wall Street Journal and lots of other outlets. The result was a stampede for the doors as investors took profits off the table for fear that others would sell before them.
At the current price, I think the stock still looks good when you factor in its impressive financial results in the most recent quarter, which Citron has not done.
As I’ve shown you today, Ambarella still faces a lot of growth in the years ahead. After this fairly hefty “haircut,” the stock should resume its upward trajectory.
Let’s cut its earnings growth rate back to a very conservative 15%. If that happens, we should see another double in less than five years.
And Ambarella isn’t the only stock I see making big gains in the coming months and years.
Today, I’m revealing one of the most important initiatives I’ve ever undertaken.
In fact, I’ve spent the last six months working closely with a team of researchers to put together a special presentation on a specific company and the scientific developments it’s working on that will soon reverse degenerative conditions like heart disease, cancer, and memory loss..
This company is poised to see its revenues soar as much as 3,628% because it will soon be addressing an astounding $595.56 billion market.
To reap this windfall, you’ll need to invest in these scientific developments now – before Wall Street and other investors catch on to what’s really going on here.
So, it’s extremely important you view the presentation on these biotech breakthroughs right away.
Click here for a private airing.
Thanks for visiting. I’ll see you later this week.
- Strategic Tech Investor: The Million Dollar Tech Portfolio.
- Strategic Tech Investor: Starting Today, I’m on a Mission for You.
- Strategic Tech Investor: How to Get Annual Returns of 90%.
- Strategic Tech Investor: How We’ll Double Our Money Again With the Stock of 2014.
- Strategic Tech Investor: This Tough “Mudder” Could Lead Us to Our First Sextuple.
- Strategic Tech Investor: Here’s How to Double Your Money With Our GoPro IPO “Backdoor.”
- Strategic Tech Investor: This Stock Doubled Your Money – And It’s About To Double It Again.
- Strategic Tech Investor: I Found a Pot of Gold – at the Consumer Electronics Show.
- Strategic Tech Investor: “Backup-Camera Envy” Is Driving This Unstoppable Trend.